A candidate for Chicago mayor has issued a stark warning about the city's underfunded pension system, cautioning that certain funds risk "complete insolvency" in the event of a market correction.
Suzanne Mendoza, the candidate, stated in an interview, "If the market catches a cold, I don't even know if we can survive pneumonia."
Mendoza, who is currently the top fiscal officer for the state of Illinois, made these remarks as Chicago's four city employee pension funds reported a combined funding ratio of just 28.1% last year. This figure stands in stark contrast to the national average of 82.5%, positioning the city's retirement system among the most underfunded in the United States.
This warning underscores the financial strain facing public pension systems across the U.S. Despite years of robust stock market gains, many remain burdened by massive unfunded liabilities. Chicago has become a testing ground for how state and local governments might handle public pension plans that are severely underfunded and teetering on the brink of failure.
"Chicago's pension crisis is critically important for the rest of the nation because everyone is wondering what happens when a pension system completely collapses," said Zachary Christensen, managing director of the Reason Foundation.
According to the think tank Equable Institute, numerous U.S. public pension plans face significant shortfalls, with 76 state and local retirement systems funded below 75% last year.
In a report this year, Equable noted, "The cost of paralyzed pension debt continues to grow, while fragile pension systems remain vulnerable to market downturns and unpredictable political policy."
Few cities exemplify America's public pension crisis more than Chicago. Since 2000, the total funding ratio for Chicago's retirement plans has plummeted by more than two-thirds. For decades, successive city administrations reduced contributions to Chicago's public retirement systems to ease short-term budget pressures, creating a pension gap estimated in the tens of billions of dollars.
Mendoza indicated that the recent boom in U.S. stock markets has done little to alter the overall picture, as the rally has failed to help the funds balance their books, leaving them highly exposed to a potential recession.
"We missed out on some pretty significant, robust returns, and we can't make that up," she said, adding that if markets decline, these funds would be "wiped out."
Further pressure may come from an Illinois law enacted last year, which increased pension benefits for Chicago police and firefighters hired since 2011. City estimates suggest this could drop the funding ratio for their pension funds from approximately 25% to 18%.
"At your current funding levels, you're already on the brink," Mendoza said.
The pension crisis is emerging as a central issue in Chicago's 2027 mayoral race, which includes candidates such as U.S. Congressman Mike Quigley. While most candidates have placed the city's fiscal challenges at the core of their campaigns, Mendoza has taken the firmest stance on pensions, arguing that Chicago cannot afford the burden of further benefit increases, which would add more strain to an already stressed system.
"Having something is better than having nothing," she remarked.
Mendoza acknowledged that any reform to Chicago's pension system would require difficult compromises. "Realistically, how do we stabilize these pension funds?" she asked. "Everybody may have to give something up."
Many public sector employees in Chicago reject this narrative, arguing they should not bear the cost of the government's decades-long failure to properly fund pensions.
"The pension debt is due to the city's past failure to pay what it owed," said Anders Lindell, a spokesperson for Council 31 of the American Federation of State, County and Municipal Employees (AFSCME), Illinois's largest public employees union. "Claiming you won't discuss future benefits doesn't actually solve the problem. It's a distraction."
Mendoza has also proposed expanding voluntary pension buyouts, which would allow eligible workers to receive a lump-sum payment in exchange for forfeiting certain future benefits. She suggests directing any remaining city revenue toward pension stabilization and a municipal emergency fund.
"Everything is on the table because we have to stabilize the city's finances," she concluded.
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